For years now, alternatives to the income tax have been
bantered around our nation. Some propose a flat income tax,
eliminating loopholes and letting everyone pay a fair share
with minimal reporting. Others propose various forms of
consumption taxes, essentially creating a federal sales
tax.

Fair Tax, one of the more polished proposals,
is also a fine study in the art and science of
communications. Our military, private
foundations and the clandestine agencies created after
World War Two, have spent millions developing methods to
control the public mind.

Formerly called propaganda and mind control, they were
euphemistically re-named and refined as the science of
communications.

An apparently well funded organization is promoting this
idea of a Fair Tax.

With a national radio ad campaign, an 800 number and an
envelope full of glossy little brochures appearing in your
mailbox, an unknown they promote the notion of
this Fair Tax. It's a very plausible and
palatable package until you get to the bottom line: These
unnamed promoters want us all to pay a 23 percent national
sales tax.

Fair? Does throwing nearly a quarter to the federal
government every time you spend a dollar bill seem fair?
And who will do the dirty work?

The Fair Tax, as described, proposes to let
retailers become federal tax collectors, taking over the
job of the IRS. Once again, the less well-to-do will bear
the costs of government while pre-retail big money escapes
its share of the burden.

Many dollars are being spent by someone to make such a deep
skinning seem fair. A communications shuck and jive, par
excellence.

While big money and big government would like to stick it
to the consumer, there is a great tax idea that gets small
mention. Remember, Democrats, Republicans and their
comrades in the press corps are a political unit that makes
a living milking the middle class. They don't want you to
hear about this tax plan.

Too good to be true?

What if there was a viable tax system with no tax or
information returns? A flat tax with no loopholes? A
revenue neutral, broad based collection system that is
efficient, equitable and utterly simple? A tax system that
would have a high rate of compliance with a relatively low
cost of administration, using existing mechanisms for
collection? An end to withholding, tax accounting,
depreciation, tax credits for special interests and refunds
of your funds taken and held by the government?

And what if the federal government could be fully funded,
at its current spending rate, under this plan by imposing a
0.3 percent tax rate on this new tax base? That's right,
not 30 percent, not 23 percent, not even 3 percent , but
0.3 percent. Have I perked your interest?

Edgar Fiege, a professor at the University of Wisconsin,
proposes just such a tax system.* Although he admits that
he is under no illusion that such a radical proposal
will be readily implemented, the simplicity and
fairness of this plan could please even the so-called tax
protesters.

The Automated Payment Transaction Tax or APT Tax, would
impose an automatically deducted tax on financial
transactions at the point of transfer. Whenever a financial
transaction occurs, the buyer and seller would each pay an
automatically deducted 0.15 percent tax for a total of 0.3
percent.

If you cashed someone's $100 check the issuer of the check
would have 15¢ deducted from their checking account
and you would get $99.85 back from the teller.

Using a credit card, your account and the merchant would
automatically be charged the APT tax. All final party
transactions using banking or brokerage houses would be
taxed at the same rate. A small price to pay considering
there would be no more April 15th fleecing.

How can such a seemingly small tax fully fund the federal
government at its current spending rate? The current tax
base of the federal government is limited primarily to
income and excise taxes. Mega-billions of dollars change
hands daily on the financial markets. Businesses similarly
move a lot of money around.

Personal accounts, both checking, savings and credit
accounts all add up to a very large potential tax base,
allowing such a small tax rate to accommodate the large
costs of government.

As Dr. Fiege says, the APT approach would extend the
tax base from income, consumption and wealth to all
transactions. It can be viewed as a public brokerage fee
accessed by the government to pay for providing the
monetary, legal and political institutions that facilitate
and protect market trade and commerce.

As a concept this is a good idea, but it maintains the
illusion that our government provides the nation with a
monetary institution. The Federal Reserve, as any astute
student of economics would know, is a privately held entity
which has assumed control of our national economy.

Government ceased to operate our national monetary
institution beginning in 1913. The APT Tax would also
support many governmental purposes beyond market trade and
commerce.

The simple benefits of a simple system

Professor Fiege explains, real-time tax collection at
the source of payment would apply to all types of
transactions, thereby reducing administration and
compliance costs as well as opportunities for tax evasion.
Debit and credits to bank and brokerage accounts are
recorded as part of routine accounting practices. Thus, the
collection and aggregation of debit statistics would impose
a minimal added burden on the financial community.

The simple system of the proposed APT tax revenue
assessment and collection system would, Professor
Fiege explained, demand only a software modification
to existing financial institution accounting procedures.
The change would create a virtual tax payment account
linked to every customer's financial account.

A Good Tax? A Fair Tax?

There would be no more filing returns because the revenue
would be automatically and electronically transferred to
the government.

The APT tax would also, reduce the distortions caused
by taxing productive activity, recapturing much of what
economists call 'dead weight' efficiency losses created by
the current tax system, said Fiege.

He explains, The APT tax would fundamentally change
the incentives facing companies, altering the rules of
doing business. The state's present extensive participation
in the costs of doing business provides companies with
perverse incentives to inflate overall costs since they now
serve to reduce overall tax liabilities. Moreover,
depreciation rules, interest deductions and deductibility
of particular forms of compensation create major
distortions in companies' choices of depreciation
schedules, modes of financing investment and payment of
compensation to factors of production. With the APT tax,
companies would be free to select internal depreciation
methods that reflect actual replacement costs of their
capital stock, the most efficient methods of financing
investment and the least costly compensation packages.

Finally the APT tax would reduce distortions created
by the wide range of tax rates on different classes of
investment.

Many market speculators attempt to take advantage of short
term, but relatively small percentage gains in market
conditions to yield their profits. This rapid buying and
selling can cause unstable market conditions. Raising
transaction costs with the small APT tax could help to
reduce market volatility by making such short term
speculation less profitable.

Like a gas tax, the more you use, the more you pay. The
wealthiest portion of the population naturally does the
most money changing and would therefore pay the most APT
taxes. Under the APT system, tax exemptions, tax credits
and loopholes would be gone.

Special interests would no longer enjoy any special
treatment. Government support of special interests would
require direct expenditures, not tax relief, subjecting
those interests to direct political evaluation.

The little tax that could

How can such a small tax rate generate revenue big enough
to pay the largesse of the federal government?

Professor Fiege runs the numbers. Transactions
directly associated with the production of final goods and
services amount to roughly twice the Gross Domestic
Production. Although these transactions represent less than
5 percent of total transactions, they constitute the
principle portion of the current tax base.

[The] APT tax devised to replace federal, state and
local personal and corporate income, excise, gift and
estate taxes would thus have been required to yield tax
revenues of $1,357 billion in 1996. In 1996 the APT tax
base was 98 times larger than the income tax base as
measured by the Internal Revenue Service's estimate of
adjusted gross income. Given an estimated initial APT tax
base in 1996 equal to some $445 trillion and a required
level of tax revenues of $1,357 billion, the
revenue-neutral tax rate per transaction would equal 0.3
percent.

Cash and the APT tax

All tax systems, including the APT, are vulnerable to
evasion when paper currency is freely available. One
practical approach is to exact a tax on currency each time
it leaves and enters the banking system. To be effective,
the tax rate on currency would have to be higher than the
tax rate on checking [because currency can circulate
several times before reentering the banking system],
said Fiege.

From mean tax to lean tax

Professor Fiege is an expert in the underground economy --
an economy created in part by an oppressive and inefficient
tax system. As professor Fiege explains. The direct
costs of collecting the individual income tax in the United
States amounts to between 7 and 8 percent of revenues
raised...with taxpayers spending approximately two billion
hours to comply with the law. Extrapolating these estimates
suggests that total annual collection and compliance costs
are well in excess of $100 billion. The APT collection
system would bring the marginal costs of collection and
compliance down to the cost of electronic transfers of
information.

Eliminating the waste linked to price distortions
created by the current tax system could yield annual
benefits in excess of $250 billion. The elimination of tax
and information returns could yield added compliance costs
savings between $100 billion and $200 billion a year. To
these savings add the reduced administrative and
enforcement costs resulting from the unique automated
collection mechanism of the APT system. The quantifiable
benefits of eliminating the current tax system are
therefore likely to range from $350 billion to $500 billion
per year.

Although Professor Fiege does not specifically propose that
the APT tax system replace conventional state and local
taxing methods, he does suggest that states could establish
resident-specific taxpayer accounts directly linked to the
federal APT tax collection.

Ending the need for tax evasion

The IRS projected 1992 unreported legal-source income
on individual income tax returns at $587 billion, while my
own research suggests that unpaid taxes totaled $123
billion in that year. The low APT tax rate would reduce the
payoff from tax avoidance, said Dr. Fiege.

His article suggests that offshore tax
avoidance methods could be defeated by several means. They
could be denied legal protections in APT-compliant
jurisdictions. APT tax compliant nations could also refuse
to recognize credits or debits from offshore
havens.

A simple, less offensive option exists, but is not
mentioned in his article. Finances leaving the country for
an offshore haven could be taxed the seller's
half of the APT tax on departure and pay the buyers half
upon their return to this country. The APT tax would then
be fully paid within our country and subject to the laws of
the offshore haven when the finances are within
its jurisdiction.

Who would lose?

Gone would be the IRS and its workers. Tax preparers,
accountants and tax lawyers would soon follow. Would this
be a loss to society? Stocks and other markets would cool
down a degree or two with this small tax on transactions.
Would such stability in the markets help keep the roller
coaster on the tracks?

Final questions

The APT tax proposal fails to address issues of what is a
constitutionally valid system of taxation. It also promotes
the belief in the fantastic, elastic, fictional paper and
ink economy backed by the full faith and credit of fools
who believe that paper and ink or plastic and electronic
transfers are money.

While the APT tax may be valid as a constitutional excise
tax, some questions remain: A tax on what? Does it further
legitimize the fraudulent conversion of our government
operated, constitutional gold and silver economy of
substance to a privatized, unchecked, fractional reserve
banking system? Under the APT system, the banking and
brokerage houses will not pay the tax but will merely
collect and transfer it to the government. Is this another
cozy public/private partnership likely to be subject to the
same independent scrutiny as the Federal Reserve Bank that
has never been audited?

That having been said, The APT tax proposal should also be
held up to the light of day so it can be contrasted against
the current tax system and other tax reform proposals.

In the words of Professor Fiege, The APT tax proposal
embodies the principles that have guided all successful tax
reform proposals: simplicity, equity, efficiency and
reduced costs of administration and compliance. To achieve
these ends, it contemplates revenue neutrality, base
broadening, the reduction of marginal tax rates, a single
flat tax rate, the elimination of tax loopholes, the end of
tax returns and information returns, and automatic
electronic assessment and collection of taxes. Not a bad
deal really.

Editor's note: Hari Heath is a federal fugitive but his
monthly column is always on time. Because he intelligently
conducted a three-year challenge of the federal
government's authority to write citations on state lands
administered by the federal government, Judge Edward Lodge
chose to impose a six month jail sentence and two year
probation that Heath could not accept. The original crime
was an alleged skinny dipping offense. The story can be
found on our website at:
www.proliberty.com/observer under writersor
in the March, 2001 edition of The Idaho Observer. His
Confessions of an Anti-Government Terrorist can be found in
the April, 2001 edition of The IO. Winter is coming and
Hari's ability to feed his family has been compromised. If
you can spare a few bucks, send them to Hari c/o The IO and
we will make sure he gets them. Thanks. (DWH)